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From USOBA to the FTC. A Last Minute Effort.

The letter below was just added to the public record but as you can see, up to 7 days before the announcement of the new telemarketing sales rules, USOBA was still at it.

What I find interesting is the new telemarketing sales rules apply to others and not just debt settlement companies but no other segment they apply to was vigorously objecting to them. You don’t see any push back from for-profit credit counseling or debt negotiation folks.


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Here is the letter John Ansbach from USOBA asked to be placed on the record.

July 22, 2010

Federal Trade Commission Office of the Secretary
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580-0001

Re: Supplement to previously filed comments on Telemarketing Sales Rule – Debt Relief Amendments
– R411001

Dear Chairman Leibowitz:

As the Commission completes its work regarding rule making in the debt settlement industry, we wanted to make you aware of three just published articles from the Texas Review of Law and Politics, which may be helpful. Below is a brief description of each published article; please do consider this as our express request that this and these articles be place on the public record of this rulemaking.

“Tax-exempt Credit Counseling Organizations and the Future of Debt Settlement Services,” is authored by Ronald D. Kerridge, a partner with K&L Gates LLP, and Robert E. Davis, also a partner with K&L Gates LLP who served as Deputy Assistant Attorney General/Tax/Department of Justice. This paper examines whether consumer credit counseling services, currently set up as not-for-profit entities, can legally make the transition to providing debt settlement services in the event that current providers of such services are largely eliminated; the paper concludes that such providers will encounter extremely significant legal and regulatory challenges in attempting to meet these consumer needs.

“The Bear Hug that is Crushing Debt-Burdened Americans: Why Overzealous Regulation of the Debt-Settlement Industry Ultimately Harms the Consumers It Means to Protect,” is authored by Derek S. Witte, tenure-track Associate Professor, Thomas M. Cooley Law School. This paper asserts that DSCs need to be able to recover at least a portion of their costs of rendering services, as they render them. Even if a contingency model were workable, prohibiting DSCs from collecting payment as services are rendered will require consumers who complete the program to subsidize those who don’t complete, but nonetheless obtain value, making it difficult if not impossible for legitimate DSCs to compete with those who are not legitimate, resulting in misaligned incentives for DSCs, and ultimately harming consumers.

“Hid(ing) Elephants in Mouseholes: The FTC’s Unwarranted Attempt to Regulate the Debt-Relief Services Industry Using Rulemaking Authority Purportedly Granted by the Telemarketing and Consumer Fraud and Abuse Prevention Act,” by Michael Thurman and Michael Mallow, both partners at Loeb & Loeb LLP in Los Angeles. The authors of this article assert that the FTC has engaged in a significant expansion of legislative authority in order to try to regulate the debt settlement industry and that such activism is unwarranted, illegal and risky. [I covered this publication here. It slurs the FTC.]

Thank you as always for your willingness to continue to consider these very important consumer protection matters.

John Ansbach
USOBA Legislative Director
[email protected]

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Jon Noble

    Steve, what are your thoughts on CCCS companies getting a % of the debt they are collecting from consumers? Do you see it as a conflict of interest?

    In lieu of joining a credit counseling debt consolidation plan, more cash-strapped consumers are opting for bankruptcy. In 2010, consumer bankruptcy filings may exceed 1.6 million, cites the American Bankruptcy Institute. This present sign warns that the aim of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a federal bankruptcy law that was intended to decrease the number of bankruptcies, is seriously backfiring for the banks.

    Incredibly, the banking industry spent more than $100 million lobbying for the bankruptcy law according to the New York Times.

    However, five years after Congress passed bankruptcy reform, many critics are now questioning if the banks’ massive campaigning in Capitol Hill really worked.

    It’s an eerie afterthought that the same banking institutions that felt the need for bankruptcy reform are the biggest backers of non-profit consumer credit counseling agencies.

    Banks favor these agencies because their debt consolidation approach helps them recover total repayment of a debt’s outstanding principal balance. In turn, credit counselors share with banks a fair-share agreement. And for every dollar that they collect from debtors, the profit isn’t bad. The fee paid to them by banks can range from 7-15 percent.

    However, critics question if this financial relationship is also a healthy marriage for consumers.

    Arguably, observing their reported 21 percent completion rate, many consumers that decide to join a debt consolidation plan may be getting the short end of the stick.

    • Steve Rhode


      FYI, I deleted the other two identical comments you posted so we had one place to discuss these issues.

      I totally agree with you that the current funding of credit counseling creates a problem for consumers. It’s an issue I’ve been vocal about for years and one that Mike Croxson from CareOne and I discussed in my recent interview with him, here.

      I’m very familiar with battle for 2005 bankruptcy reform and was involved in the battle for years prior with staff on the Hill about why the changes were not necessary. Banks won.

      And in 2008 I submitted my feelings on this issue. You can read my comments in Federal Trade Commission Should Allow For-Profit Credit Counseling and Debt Settlement Firms to Assist All Consumers.


    • http://none OLD DEBT


      I noticed you (STEVE) stated that there was no push back from Consumer Credit Couseling groups and you cited USOBA as pushing back or still at it.

      Most American consumers dont know that CCC companies makes a 20% commission on the debt your bring to them. CCC companies also receive compensation from the credit card companies after a series of payments in to a scheduled workout program. This is good for the creditor, they get 100% of their money back and its also good for the CCC company, they make 20%. The client on the other hand is on the hook for 120% of the original debt. They are in a quasi chapter 13 BK for the next 5 to 7 Years…. Yup! no push back STEVO…. Wonder why..

      OFF THE MARK … Again Stevo.

      • Steve Rhode

        I do talk about the effectiveness of each of the different types of solutions in an article that is linked in the right hand margin. Look at The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. And I certainly have been open about the golden handcuffs that bind credit counseling. Have you read this article?

        Were those the points you feel I missed?

        By the way, Credit Counseling today receives a 5% return from creditors for money they return and not the 20% you stated. Even at its highest it was 15% but that was many years ago. I do remember there were a few banks that offered a $50 spif after receiving on-time payments over 120 days but I’m not aware those rewards still exist. Do you have any specific information who may be offering those today?


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